Payroll Webinar: Payroll Tax Nexus 2021: Impacts on Organizations as a Result of Remote Work

Organize. Humanize. Maximize.
Payroll Tax Nexus 2021: Impacts
on Organizations as a Result of
Remote Work
February 25th, 2021
Scott Schapiro

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Today’s Speaker
Scott Schapiro is the founder and President of EX4 Payroll Tax Consultants, LLC,
which began serving clients in October of 2020. Prior to starting his own firm, Scott
was with KPMG LLP for 25 years, a principal in KPMG’s Global Mobility Services
(GMS) practice for 17 years, and the Principal in Charge of KPMG’s national
Employment Tax practice for twelve years. With over 36 years of experience in the
federal and state payroll and payroll tax arena, Scott is highly qualified to assist in all
matters of employment taxation for organizations of all sizes and industry focus.
During his career, Scott has provided services to clients nationally, and coordinated
a team of professionals dedicated to the area of payroll taxes. As a sole practitioner,
Scott continues to provide personalized services to his clients, and advises
companies of all sizes and in all industries on a variety of complex employment tax
issues related to all aspects of payroll taxation.
Scott Schapiro

Discussion agenda
• Employment scenarios
• Employment tax review
• Telecommuting – pre/post pandemic
• Work from home vs work from anywhere
• What could go wrong?
• 2020 close/2021 and future planning
U.S. State Employment Tax Nexus - 2021 8

Common
employment
scenarios
during
COVID
• Offices closed, employees required to
work elsewhere (home…anywhere?)
• Furloughed, on payroll but no services
being performed.
• Offices primarily closed, but some
employees allowed or required to work
at the primary location.
• Employee level
• Role specific
• Essential workers
• Hybrid – e.g. 3 days remote, 2 days in
office.
• Fully back in the office.

Employment tax basics
• Federal employment taxes:
• Social Security
• Medicare
• Additional Medicare
• Federal unemployment tax
• Federal income tax
 State/local employment taxes:
 State income tax
 State unemployment tax
 State disability
 City/Locality taxes

State
income tax
withholding
• Employers may be required to withhold
state income tax on:
 Wages paid in the primary state where
services are performed, and
 Wages paid to nonresidents of a state for
services performed in that state, and
 Wages paid in an employee's state of
residency
• Several general exceptions may apply:
 Pension distributions (4 USC Sec 114)
 State de minimis thresholds
 Reciprocal agreements
 Hybrid work locations
• Telecommuting provisions
 Pre COVID-19
 Current provisions

De minimis thresholds
• Arizona – 60 days
• Connecticut – 15 days/retro to day 1
• Georgia – 23 days/5% income/$5,000
• Hawaii – 60 days
• Idaho - $1,000
• Maine – 12 days/$3,000
 New Mexico – 16 days
 New York – 14 days
 Oklahoma - $300
 South Carolina - $1,000
 Utah – 60 days for employer in state
 Wisconsin - $1,500

Pre-COVID telecommuting rules
• Generally applies to employees
working from home
• Generally selective, not meant
for an entire employee
population
• Wage reporting/withholding
may be required in the primary
work state as per the employee
HR or work location file
• Consider Convenience of the
Employer (COE) tests
 Connecticut - Public Act 18-49/Sec
20(2)(C)
 Nebraska - Admin Code Title 316,
Sec 22-003.01C(1)
 New York – 20 NYCRR Sec 132.18(a)
 Pennsylvania – 61 Pa. Code Sec
109.8
 Phil – Income Tax Regulations,
Article II, Section 209
 Delaware – 2017 Del. Schedule W

COVID employment tax-focused
telework positions (examples)
• Georgia – wages earned by employees while temporarily
working in GA will not be considered GA income for
withholding tax purposes
• Illinois – waiver of P&I for employers for failure to WH, but
employees required to remit estimated taxes
• Maryland – TW from within MD subject to employer
withholding
• Massachusetts –MA employers required to withhold SIT on
nonresidents who previously worked in MA and are now
teleworking from outside MA

COVID employment tax-focused
telework positions (examples)
• Missouri – Allows a waiver to employers with nonresident
employees working in the state during the pandemic if an
affidavit is submitted by 1/31/21
• New York – Applying COE methodology
• Philadelphia – Phil nonresidents required to work outside of
Phil are not subject to nonresident Phil withholding
• South Carolina – Employees temporarily working in SC will not
require employer withholding

City of
Philadelphia
FAQs
• Guidelines issued re pre-COVID Phila based
employees now required by the employer
to work remotely outside the City.
• Nonresident withholding can be refunded
for 2020 or turned off for 2021 if guidelines
are met.
• Employer or employee can file for 2020
refunds if warranted, based on days in/out
allocation.
• Bonuses paid in 2021 but based on 2020
performance should be allocated based on
percent of time in Phila in 2020.
• Wages paid as a result of Phila location
closure but no resulting required telework,
should be Phila sourced to the extent Phila
work would have occurred.

Work from home
• Set work location permitted, which is generally a
permanent/resident state and/or the primary work location.
• Withholding would generally occur in one or both locations,
depending upon state rules and allocated time spent.
• State Forms W-4 and reciprocity agreements are taken into
account in both the payroll and HRIS systems.
• May not require individual employee “tracking” as to work
location.

Work from anywhere
• Mobile work location that may need to be tracked and taxed
accordingly.
• Could result in multiple states of withholding and reporting
required, as well as potential double taxation of employees.
• Could impact other tax types if services are performed in
nonregistered states.
• Consider nontax issues, such as worker’s compensation,
minimum wage differences, etc.
• Lack of controls could also lead to international issues.

Workcation
• Washington Post article from February 21, 2021
• Noted in the Travel section
• Mix of Work and Vacation
• Of course, no mention of tax or employer responsibilities

Potential Relief?
Remote & Mobile Worker Relief Act (S. 3995)
• Introduced June 2020, amended February 4, 2021.
• Follows up on longstanding relief efforts on mobile
employment
• S. 3995 focuses specifically on health care workers crossing
state lines to provide services.
• Not specific to Telework or a general workforce change.
• Uncertain legislative prospects.
20

2020 year-end considerations
 Form W-2 reporting concerns, uncertainty and conflict
 How did dislocated worker reporting look?
 Be prepared for employees requesting changes based upon
where they worked during the year compared to what their
Forms W-2 showed.
 Employers need to understand limitations on correcting state
withholding for a prior year.
 Understand potential employee obligations but refer to
personal tax advisers.
 Handling employee calls and communication appropriately
will be crucial.

What
might
2021 look
like?
• COVID-19 continuing disruption causing long
term primary workplace dislocation
• Potential focus on “required” Telework
(Philadelphia)
• Business travel questions
• Employee reluctance to commute or work in
metropolitan areas even when offices are
open
• High unemployment and increased
federal/state unemployment tax costs for
employers
• Potential for increased state audit activity
on these issues appear likely

WA
OR
CA
MT
ID
NV
AZ
UT
WY
CO
NM
TX
OK
KS
NE
SD
ND
MN
IA
MO
AR
LA
MS
AL
GA
FL
SC
TN
NC
IL
WI
MI
OH
IN
KY
WV VA
PA
NY
ME
VT
NH
NJ
DE
MD
Washington D.C.
MA
CT
RI
AK
HI
Very active
Moderate activity
Light activity
No known pattern
of activity2
No Income tax
HI
Pre-Covid state employment tax audit and
enforcement
General frequency
of audit activity

State unemployment insurance/tax
considerations
• Employers may need to align 2021 SUI tax reporting to the current state
of employment/nexus (if not done in 2020)
• SUI benefits charged as a result of COVID based work stoppages may be
abated in full for tax-paying employers and 50% reduction for not-for-
profit employers.
• Abatements/reduction may not be automatic and could entail employer
review and action.
• Benefit charge/reimbursement statements and 2021/2022 tax rate
notices should be closely scrutinized on a timely basis.
• Tax paying employers should expect state taxes to rise significantly for
several years, beginning in 2022 (at the latest) as funds are depleted.

Federal unemployment tax (FUTA)
considerations
• FUTA taxes are paid to finance state unemployment system administration.
• Tax is 6% of the first $7,000 of employee earnings. However, employers generally
get a credit of 5.4%, so effective tax rate is .6% ($42/employee).
• The 5.4% credit may be reduced if the state borrows funds to replenish their SUI
coffers in the event of extreme unemployment (hello pandemic) and cannot repay
the loan timely (Title XII advance).
• Current Title XII advance total (through 2/17/21) - $49.4B. Top 5:
• California - $19B
• Illinois - $3.8B
• Massachusetts - $2.2B
• New York - $9.8B
• Texas - $6.4B

COVID-19
global
payroll
concerns
• Countries that allowed Business Trips to
be tax exempt under certain number of
days rules, may no longer apply to
Teleworkers
• Considerations for inbound Teleworkers
Taxation concerns
Permanent Establishment concerns
Work authorization in country
In Country Statutory rules
In Country Labor rules

COVID-19 global Telework locations
(examples)
Countries “encouraging” Telework for U.S. employees:
Barbuda/Antigua – If earning $50K/year, can stay 2 years
Dubai – If earning $5K/month, can stay 1 year
Cayman Islands – If earning $100K/year, can stay 2 years
Aruba – no specific requirements
Estonia – If earning $3,500/month
Barbados - If earning $50K/year, can stay 1 year
Jamaica – specific COVID testing requirements, 30 day
extendable visa

Other
considerations
• Worker’s Compensation in Telework state(s).
• Fair Labor and Standards Act (FLSA)
differentials, e.g. minimum wage, paid time
off, etc., subject to state laws.
• Working overseas and Permanent
Establishment.
• Corporate income tax/sales tax nexus at the
state level.
• Locality taxation, employment and other
types of taxation.
• Equity compensation/bonus allocation from
prior period awards.

What’s the worst that could happen?
It is ultimately the employer’s responsibility to know where their
employees are working from and withhold/remit accordingly. On audit:
• The employer could be liable for the tax principal due in any
jurisdiction where services were performed/wages earned by
employees.
• Penalties and interest could be applied for failure to
withhold, failure to report and failure to file if employment
occurred in a new jurisdiction.
• In the event of separation, the employee could be denied
unemployment benefits and the employer forced to amend.
• Litigation could arise in the event minimum wage/overtime
amounts are not properly applied per work-state laws.
• Injuries occurring in a jurisdiction without workers comp
coverage could occur.

Closing thoughts on telework issues
• Payroll compliance in 2021 should be considered a strategic and business-
wide imperative.
• Communication between departments, with third party providers and with
potentially impacted employees is vital.
• Develop a strategy to address concerns from employees and tax authorities –
those concerns will arise.
• Pre-COVID a handful of states were hyper-vigilant with respect to nonresident
taxation, but with state funds scarce, state/local audits on the issue could
increase.
• Consider guardrails to gain some control over employee work location. Work
from anywhere as opposed to work from home can have a varied impact.
• Be compliant, be practical and be vigilant in terms of changing requirements,
needs and tax laws.

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Questions

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How Ascentis Payroll Can Help
Ascentis Payroll is a wizard-driven payroll system that gives
organizations both control and flexibility when it comes to their
payroll operations. With our easy and intuitive web-based
system, you can complete payroll in just a few easy steps.
• Allows you to easily complete our 5-step payroll process
from one screen.
• Assists with federal, state and local tax filings, no matter
the complexities your organization faces.
• Allows employees to run as many real-time simulations as
they want in order to make the best financial decision.
• Comes with an easy-to-use mobile app to ensure a flexible
and stable payroll process.
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Talent
Management
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Time &
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Contact Us
scottschapiro@ex4payrolltax.com
301.938.1122
info@ascentis.com
www.ascentis.com
800.229.2713

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